United Steel Allied Industries Pvt. Ltd. Vs. Fairgrowth Financial Services Ltd. and ors. - Court Judgment

P.S. Mishra, C.J.

1. The appeal under clause 15 of the Letters Patent which has arisen out of an application in the petition under article 226 of the Constitution of India as well as the petition are posted together and have since been heard together.

2. Since the main writ petition has been heard and is being disposed of, no order in the appeal is required except to record that the same has become infructuous.

3. The petitioner is a company incorporated under the Companies Act, 1956, having its registered office in the city of Hyderabad. According to its version, it approached the first respondent, Fairgrowth Financial Services Ltd., Bangalore, for a short-term loan. The first respondent on January 20, 1992, informed the petitioner that its request for a short-term loan was sanctioned for a sum of Rs. 1.10 crores subject to the conditions and terms as mentioned in the letter of acceptance of the request of borrowing. According to the petitioner, it placed five lakh shares of Rs. 10 each held by it in equity share capital of Oil Country Tubular Ltd. as collateral security for the loan. The loan was to be repaid in three instalments of Rs. 36.66 lakhs each, however, the last being of Rs. 36.68 lakhs. The petitioner paid the first instalment on June 29, 1992. In the meanwhile, however, action was taken under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992, and the office of the Custodian, Special Court, made certain enquiries as regards the loan by the petitioner. It (the petitioner) furnished informations in this behalf and it is alleged, received in return a letter, dated June 9, 1993, from the second respondent - the Custodian for payment of the balance instalments of the loan. The petitioner, it is alleged, informed the second respondent vide letter, dated June 16, 1993, that he could invoke clause 15 of the agreement under which equity shares of Oil Country Tubular Ltd. were furnished in security and sell the shares in the open market to appropriate the amount received towards balance of the outstanding of the dues and refund back any excess amount. According to the petitioner, it informed the Custodian (second respondent) that it had already executed the necessary transfer deeds in favour of the company. The petitioner, however, has alleged that it has received a notice from the Special Court under the Act in M.P. No. 68 of 1994, which has been filed by the first respondent for a sum of Rs. 1,29,23,800.54.

4. Some allegations have been made against the first and second respondents, which, for the purposes of adjudication of the issues before us, are not necessary. However, instead of responding to the notice of the Special Court in M.P. No. 68 of 1994, and appearing before it for adjudications as above, the petitioner has chosen to question the validity of section 9A of the Act, which, according to it, is beyond the scope and purpose for which the Special Court has been constituted and which, according to it, defeats the very object for which the Special Court has been constituted.

5. Learned counsel for the petitioner has produced before the court the Statement of Objects and Reasons for the Special Court (Trial of Offences Relating to Transactions in Securities) Act, which read as follows :

'In the course of investigation by the Reserve Bank of India, large scale irregularities and malpractices were noticed in transactions, in both the Government and other securities, indulged in by some brokers in collusion with the employees of various banks and financial institutions. The said irregularities and malpractices led to the diversion of funds from banks and financial institutions to the individual accounts of certain brokers.

To deal with the situation and in particular to ensure the speedy recovery of the huge amount involved to punish the guilty and restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions the Special Court (Trial of Offences Relating to Transactions in Securities) Ordinance, 1992, was promulgated on the 6th June, 1992. The Ordinance provides for the establishment of a Special Court with a sitting judge of a High Court for speedy trial of offences relating to transactions in securities and disposal of properties attached. It also provides for appointment of one or more Custodians for attaching the property of the offenders with a view to prevent diversion of such properties by the offenders. (The Bill seeks to replace the said Ordinance).'

6. After, however, the enactment, which came into force, after receiving the assent of the President, on August 18, 1992, amendment is introduced by Act No. 24 of 1994 (See [1994] 80 Comp Cas (St.) 14), by providing some provisions in respect of the trial of the cases for the offences under the Act, in the absences of the Special Court and after section 9 of the principal Act, section 9A is added, which reads as follows :

'9A. (1) On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Act, 1994, the Special Court shall exercise all such jurisdiction, powers and authority as were exercisable, immediately before such commencement, by any civil court in relation to any matter or claim -

(a) relating to any property standing attached under sub-section (3) of section 3;

(b) arising out of transactions in securities entered into after the 1st day of April, 1991, and on or before the 6th day of June, 1992, in which a person notified under sub-section (2) of section 3 is involved as a party, broker, intermediary or in any other manner.

(2) Every suit, claim or other legal proceeding (other than an appeal) pending before any court immediately before the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Act, 1994, being a suit, claim or proceeding, the cause of action whereon it is based is such that it would have been, if it had arisen after such commencement, within the jurisdiction of the Special Court under sub-section (1), shall stand transferred on such commencement to Special Court and the Special Court may, on receipt of the records of such suit, claim or other legal proceeding, proceed to deal with it, so far as may be, in the same manner as a suit, claim or legal proceeding from the stage which was reached before such transfer or from any earlier stage or de novo as the Special Court may deem fit.

(3) On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Act, 1994, no court other than the Special Court shall have, or be entitled to exercise any jurisdiction, power or authority in relation to any matter or claim referred to in sub-section (1).

(4) While dealing with cases relating to any matter or claim under this section, the Special Court shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice, and subject to the other provisions of this Act and of any rules, the Special Court shall have power to regulate its own procedure.

(5) Without prejudice to the other powers conferred under this Act, the Special Court shall have, for the purposes of discharging its functions under this section, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely :-

(a) summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or documents;

(f) reviewing its decisions;

(g) dismissing a case for default or deciding it ex parte;

(h) setting aside any order of dismissal of any case for default or any order passed by it ex parte; and

(i) any other matter which may be prescribed by the Central Government under sub-section (1) of section 14.'

7. This new section and section 9B with which we are not concerned, has vested in the Special Court under the Act jurisdiction, powers and authority of any civil court in relation to any matter or claim - (a) relating to any property standing attached under sub-section (3) of section 3; and (b) arising out of transactions in securities entered into after the 1st day of April, 1991, and on or before the 6th day of June, 1992, in which a person notified under sub-section (2) of section 3 is involved as a party, broker, intermediary or in any other manner and also that of a court under the Arbitration Act to decide any question forming the subject-matter of a reference relating to any matter or claim as above (see section 9B).

8. Section 3(1) says the Central Government may appoint one or more Custodians, as it may deem fit, for the purposes of the Act, and in other parts reads as follows :

'(3)(1) . . .

(2) The Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transactions in securities after the 1st day of April, 1991, and on and before the 6th June, 1992, notify the name of such person in the Official Gazette.

(3) Notwithstanding anything contained in the Code and any other law for the time being in force, on and from the date of notification under sub-section (2), any property, movable or immovable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notification.

(4) The property attached under sub-section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct.

(5) The Custodian may take the assistance of any person while exercising his powers or for discharging his duties under this section and section 4.'

8. Although there is no specific material brought to our notice for deciding whether the conditions in section 9A(1)(a) and (b), there is some attempt before us by learned counsel for the petitioner that the matter relating to the claim of the first respondent-Fairgrowth Financial Services Ltd., upon the petitioner does not fall within the jurisdiction of the Special Court. We have decided, however, against entering into this question, for, unless necessary preliminary facts or as they are called, collateral or jurisdictional facts, are pleaded and are decided by the Special Court, for the purposes of jurisdiction to be exercised in the matter, it would be, in our view, inappropriate for the superior court to pronounce upon the jurisdiction of the Special Court.

9. One of the settled principles of law is that a court, tribunal or authority of limited jurisdiction can decide upon its own jurisdiction and in case it decides wrongly and assumes jurisdiction, the superior court, in exercise of its power of judicial review, can always examine the jurisdictional facts and decide whether the issue of limited jurisdiction has been properly determined by the court, tribunal or authority of limited jurisdiction, or not. This, according to us, should not detain us any further beyond observing that the petitioner, which has received notice from the special court in M.P. No. 68 of 1994, if so advised, can raise objection as to the jurisdiction of the Special Court and the Special Court, as we have noticed above, shall decide upon its own jurisdiction. Learned counsel for the petitioner has, however, stated that in case the issue as to the jurisdiction of the Special Court is not decided as a preliminary issue, there shall be inordinate delay and the petitioner shall suffer a protracted litigation in the Special Court. Ordinarily in matters which are referable to jurisdictional facts and which jurisdictional facts are found connected with the facts in issue otherwise in the proceeding before it, it does not decide the issue of jurisdiction separately and independently. All issues of facts and law in such matters are taken up together and the issue of jurisdiction is decided along with other issues. This, however, does not mean that in a proper case when such court, tribunal or authority is satisfied that the entire matter can be disposed of on the basis of the preliminary issue only, which issue involves a pure question of law, it cannot decide to take up such issue as a preliminary issue. The petitioner, on appearance in response to the notice, can seek hearing on the question of jurisdiction and it shall be for the Special Court to decide whether it shall take it up as a preliminary issue or as one of the issues in the proceeding.

10. It will need a mere reiteration of the principle that the vires of any Act of a Legislature are decided on the touchstone of constitutionality or rationality or unreasonableness which renders the law obnoxious. Learned counsel for the petitioner has endeavoured to contend that the transaction between the petitioner and the first respondent is in the nature of money lending and 'money lending' is a subject in List II or 'State List' as it is called, of the Seventh Schedule of the Constitution of India. Item 30 of the State List includes the subject of 'money-lending and money-lenders and relief of agricultural indebtedness'. No such subject is included in List I, that is to say 'Union List'. The subject of 'money-lending or money-lender' is also not found in List III or 'Concurrent List', as it is called. It appears to us, however, that the subject of the law as in section 9A of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, as introduced by the Amendment Act No. 24 of 1994, has been misunderstood. This section has envisaged the Special Court in lieu of the civil court of competent jurisdiction and thus is primarily a legislation on the subject of jurisdiction, powers, authority and procedure of the Special Courts in civil matters. List III of the Seventh Schedule contains the following subjects as items 11A, 12, 13 and 46 in respect of which Parliament as well as the State Legislatures are competent to make laws. They are :

'11A. Administration of justice; constitution and organisation of all courts, except the Supreme Court and the High Court.

12. Evidence and oaths; recognition of laws, public acts and records, and judicial proceedings.

13. Civil procedure, including all matters included in the Code of Civil Procedure at the commencement of this Constitution, limitation and arbitration.

46. Jurisdiction and powers of all courts, except the Supreme Court, with respect to any of the matters in the List.'

11. Referring, however, in particular to the subject in item 46, learned counsel for the petitioner has urged that the jurisdiction and powers of all courts except the Supreme Court with respect to any of the matters in the Concurrent List, that is, List III alone, can be covered and thus 'money-lending and money-lenders' being a subject in the State List only and not in the Concurrent List, Parliament has not been given the power to make law on the subject of 'money-lending and money-lenders' an obvious mistake and to say the least, extending the purpose and the subject beyond the matter which is covered by section 9A of the Act. As we have noticed already, section 9A makes provisions for the Special Court in lieu of a regular civil court and constitution and organisation of courts except the Supreme Court and the High Court is within the competence of the Parliament as well as the State Legislature and once the Parliament has made the law, the same has to prevail. Learned counsel for the petitioner has made extraneous efforts to persuade us to see the unreasonableness of ousting the jurisdiction of the regular civil court and vesting the powers of a civil court in the Special Court, which is created under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, for trial of offences referred to in sub-section (2) of section 3 of the Act. We, however, do not find any merit in this contention as there can always be a common court for both civil and criminal matters. The district judges and subordinate judges, who are appointed for the trial of civil cases, are conferred powers to try criminal cases and a judge of the High Court is a judge for the hearing of criminal as well as civil matters, which arise out of the ordinary civil or criminal proceedings and in respect of which the High Court exercises its ordinary civil or criminal jurisdiction.

12. We find no merit in the writ petition. The writ petition is dismissed. Consequently, Writ Appeal No. 413 of 1997, is infructuous and it is dismissed.